Accounting for Depreciation

Now that you know how you are depreciating your capital assets, it's time to look at the accounting that you need to do.

On the balance sheet, there are contra accounts for each group of assets. You will remember that a contra account nets off the balance of another account. It is in these contra accounts that you accumulate the depreciation on each grouping of assets.

Keeping the accumulated depreciation separated into an ac­count of its own allows you to see the original cost of that pool of assets as well as the total amount that has been depreciated to date. If you were to read another company's financial statements, this separation would give you a little more information as to the size of the asset base and the age of the assets.

When the depreciation has been calculated for the year, the entry in the general journal to record it is­

            DR Depreciation expense

            CR Accumulated depreciation (AID)

 

You would credit the accumulated depreciation accounts appropriately for the different groupings of assets, but you would make only a single entry to the depreciation expense account.